Retirement Blog

RMDs may disappear for some

Many Americans will not have to take required minimum distributions at age 70½ if the Treasury Department and Rep. Richard Neal, D-Ma., get their way.

"We propose to exempt nearly half of the seniors in America from taking RMDs. The exemption would apply to those whose aggregate account balances do not exceed $75,000 (or, under a bill introduced by Congressman Neal, $100,000)," said Mark Iwry, senior adviser to the secretary of the Treasury, at a meeting with journalists arranged by the National Press Foundation.

The rationale: People who have relatively little retirement savings shouldn't have to take out a set amount every year to satisfy arcane Internal Revenue Service rules. They will likely need the money at some time or another, so there's little danger that they will never dip into their savings and avoid taxes altogether.

The RMD rules stipulate that those with savings in a traditional individual retirement account or 401(k) must begin withdrawing the money annually at age 70½ according to a schedule set up by the IRS. Americans who use these vehicles to save for retirement can put money away on a pretax basis and grow it tax-free until age 70½. These upfront tax breaks are considered tax expenditures on Capitol Hill, since taxes from the income and growth are not collected for a number of years. Contributions to 401(k) plans are estimated to cost the Treasury $212 billion between 2010 and 2014.

Congress offers these upfront tax breaks to Americans, expecting Treasury to collect taxes at the point when people begin tapping into their savings. However, if the proposal passes Congress, RMDs would be limited to more affluent folks who might otherwise not need their savings and leave the money to heirs. Because the costs to Treasury under this proposal would be negligible, officials are optimistic the measure can pass Congress.

Retirees: What do you think? Do you find the RMD rules onerous and arbitrary? Share your thoughts.

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